Chapter 27

After repossessing the goods, the secured party can either...?

- Retain the collateral - Sell, lease, license, or dispose of it and satisfy the debt from the proceeds of the sale or disposition

A security agreement must:

1. Describe the collateral clearly so that it can be readily identified 2. Contain the debtor's promise to repay the creditor, including terms of repayment 3. Set forth the creditor's rights on the debtor's default 4. Be signed by the debtor

What is the rule for priority for "Secured vs. Unsecured" claims?

A creditor who has the only secured interest in the debtor's collateral has priority over unsecured interests.

______ law specifies where a financing statement must be filed.

State

Perfection by purchase money security interest

Creditor extends credit to a debtor to purchase consumer goods and obtains a security interest in the goods.

True or False: The debtor is not entitled to receive any surplus that remains.

False

Accessions

Goods that are physically united with other goods in such a manner that the identity of the original goods is not lost

Article 9 (Secured Transactions) of the Uniform Commercial Code

Governs secured transactions where personal property is used as collateral for a loan or the extension of credit

Attachment

Means that the creditor has an enforceable security interest against the debtor and can satisfy that debt out of the designated collateral

Third-party lender

Party who takes a security interest in the goods.

No financing statement has to be filed if the creditor has ________ of the collateral.

Physical possession

After-acquired property

Property that the debtor acquires after the security agreement is executed

A creditor who extends credit to a consumer to purchase a consumer good under a written security agreement obtains a _________________ in the consumer good.

Purchase money security interest

Disposition of collateral may be by ___ or _____ proceeding.

public, private

Unless otherwise states in a security agreement, if a debtor sells, exchanges, or disposes of collateral subject to such an agreement, the secured party automatically has the right to receive the __________ of the sale, exchange, or disposition

sale proceeds

A state may choose either the _______ or the _____________ in the county of the debtor's residence or, if the debtor is not resident of the state, in the county where the goods are kept or in another county office or both.

secretary of state, county recorder's office

When a secured consumer debt is paid, the secured party must file a __________ with each filing officer with whom the financing statement was filed.

termination statement

What are the characteristics of a buyer in the ordinary course of business?

-Buys in good faith -Doesn't have knowledge that the sale violates the rights of another person in the goods. -Purchases the goods in the ordinary course from a person in the business of selling goods of that kind

What does "tangible" personal property include?

-Equipment -Vehicles -Furniture -Computers -Clothing -Jewelry

Consumer goods include:

-Furniture -Televisions -Home appliances -Other goods used primarily for personal, family, or household purposes.

What are the three main methods of perfecting a security interest under the UCC?

-Perfection by filing a financing statement -Perfection by possession of collateral -Perfection by a purchase money security interest in consumer goods.

On default by a debtor, the secured party may:

-Reduce his or her claim to judgement -Foreclose -Enforce his or her security interest by any available judicial procedure

What does "intangible" personal property include?

-Securities -Patents -Trademarks -Copyrights

To be enforceable, a financing statement must contain:

-The name of the debtor -The name and address of the secured party or a representative of the secure party. -The collateral covered by the financing statement

What are the UCC rules for establishing priority of claims?

1. Secured versus unsecured claims 2. Competing unperfected security interests 3. Perfected versus unperfected claims 4. Competing perfected security interests 5. Perfected secured claims in fungible, commingled goods

The priority of the claims is determined according to:

1. Whether the claim is unsecured or secured 2. The time at which secured claims were attached or perfected.

What is the rule for a buyer in the ordinary course of business?

A buyer in the ordinary course of business who purchases goods from a merchant, takes the goods free of any perfected or unperfected security interest in the merchant's inventory, even if the buyer knows of the existence of the security interest.

Deficiency judgment

A judgement that the secured party may bring to recover the rest of the debt.

Perfection of a security interest

A legal process that establishes the right of secured creditor against other creditors who claim an interest in the collateral

Floating lien

A security agreement that provides that the security interest attaches to property that was not originally in the possession of the debtor when the agreement was executed

A floating lien can attach to:

After-acquired property Sale proceeds Future advances

Tangible personal property

All things that are movable when a security interest attaches

Intangible personal property

All things that are nonphysical personal property

How might the right of redemption be accomplished?

By payment of all obligations secured by the collateral, all expenses reasonably incurred by the secured party in retaking and holding the collateral, and any attorneys' fees and other legal expenses provided for in the security agreement and not prohibited by law

True or False? A financing statement that provides only the debtor's trade name provides the name of the debtor sufficiently.

False

How long are financing statements effective for from the date of filing?

Five years

What is the rule of priority for "Perfected secured claims in fungible, commingled goods" claims?

If a security interest in goods is perfected but the goods are later commingled with other goods in which there are also perfected security interests and the goods become part of a product or mass and lose their identity, the security interests rank equal and according to the ratio that the original cost of goods of each security interest bears to the cost of the total product or mass.

What is the rule of priority for "Competing unperfected security interest" claims?

If two or more secured parties claim an interest in the same collateral but neither has a perfected claim, the first to attach has priority

What is the rule of priority for "Perfected versus unperfected" claims?

If two or more secured parties claim an interest in the same collateral but only one has perfected his or her security interest, the perfected security interest has priority

What is the rule of priority for "Competing perfected security interest" claims?

If two or more secured parties have perfected security interests in the same collateral, the first to perfect has priority.

Which perfecting method is the most common?

Perfection by filing a financing statement

Perfection by attachment a.k.a the automatic perfection rule

The rule that the creditor does not have to file a financing statement or take possession of the goods to perfect his or her security interest.

What happens if the secured creditor obtains a judgement against the debtor but the debtor has no money to pay the judgement?

The secured creditor can proceed to take possession of the collateral

Secured party

The seller, lender, or other party in whose favor there is a security interest

Why are financing statements available for review by the public?

They serve as "constructive notice" to the world that a creditor claims an interest in a property.

True of False: Article 9 of the UCC defines the rights, duties, and remedies of the secured party and the debtor in the event of default, but the term default is not defined.

True

True or False: A new security agreement does NOT have to be executed each time a future advance is taken against the line of credit.

True

True or False: The secured party must act in good faith, with commercial reasonableness, and with reasonable care to preserve the collateral in his or her possession.

True

Sellers and lenders often extend credit to ____ to purchase consumer goods.

consumers

Any _______ made against the line of credit are subject to the security interest in the collateral.

future advances

Unless the creditor has possession of the collateral, there must be a security agreement signed by the debtor that creates a __________ to a creditor.

security interest in personal property

A continuation statement may be filed up to ___________ prior to the expiration of a financing statement's five-year term.

six months

The secured party must notify the debtor in writing about the time and place of any public or private sale or any other intended disposition of the collateral, unless ...?

The debtor has signed a statement renouncing or modifying his on her rights to receive such notice.

The person who files the financing statement should request what?

The filing officer to note on his or her copy of the document the file number, date, and hour of filing

What happens if the affected secured party fails to file or send the termination statement as required?

The secured party is liable for any losses caused to the debtor.

True or False: Succeeding continuation statements may be filed.

True

Secured transaction

When a creditor extends credit to a debtor and takes a security interest in some personal property of the debtor

Repossession

When a creditor takes possession of the collateral from the defaulting debtor.

Three-party secured transaction

When seller sells goods to a buyer who has obtained financing from a third-party lender

Perfection by possession of collateral

When the creditor has physical possession of the collateral.

When would a secured creditor relinquish his or her security interest in the collateral and proceed to judgement against the debtor?

When the value of the collateral has been reduced below the amount of the secured interest and the debtor has other assets from which to satisfy the debt.

Can a financing statement be filed electronically?

Yes

If a secured creditor chooses to retain the collateral, ____ must be sent to the debtor, unless he or she has signed a written statement renouncing this right.

notice of the proposal

The termination statement must be filed within ________ after the debt is paid, or _______- after receipt of the debtor's written demand, whichever occurs first

one month, 20 days